State Supreme Court rules in favor of insurer accused of bad faith

On behalf of Landrum & Shouse LLP posted in Insurance Defense on Thursday, April 23, 2015.

With the inclusion of a "consent to settle" clause in an insurance policy, you as an insurer can require the insured to obtain written consent from you before settling a legal claim related to the policy. You can also include a "no action" clause that shields you from legal action from the insured party in the event that the party doesn't fully comply with the terms of the policy.

However, even if the insured doesn't comply with the policy terms and you deny a claim, then you may still have to defend yourself against a legal strategy accusing you of acting in bad faith. In this case, you'll need a legal team with the experience, skills and staffing capabilities to identify the relevant legal issues and correctly interpret the policy in your favor.

A "consent to settle" clause and a "no action" clause were at the heart of a recent ruling in favor of a Connecticut-based insurer. XL Specialty Insurance Co. was accused of bad faith failure to settle by Georgia-based Piedmont Office Realty Trust Inc.

A securities class action lawsuit was brought against Piedmont. The company agreed to mediate the claim with the plaintiffs, but not before exhausting $4 million of a $10 million policy Piedmont had with XL. Piedmont asked XL for the remaining $6 million and XL's consent to settle, but the insurer said it would only contribute $1 million.

Still, Piedmont went ahead with a settlement for $4.9 million without getting XL's consent, then Piedmont demanded that the insurer pay the full settlement. XL refused, and the ensuing bad faith claim went before the Georgia Supreme Court, which found that the insurer was not liable because of the "no consent" clause and the "no action" clause.

If you're involved in a similar insurance dispute, then don't hesitate to speak with an insurance law attorney. The insurance defense lawyers of Landrum & Shouse LLP represent Kentucky clients involved in bad faith insurance disputes.

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